Lawsikho Blog

First in our seed funding legal series, this article guides lawyers through conducting legal health checks, cleaning early agreements, and establishing proper IP and founder documentation before investors arrive. Discover the critical preparation steps that can make or break a startup’s seed round.

Introduction

“We are offering 5% equity for ₹50 lakhs.”

If you have watched Shark Tank India, I am sure you have heard this line over 100 times.

The dramatic negotiations, quick handshakes, and celebratory hugs might make you believe that fundraising is very simple. However, what the show does not reveal is the mountain of legal preparation that happens before any founder steps in front of investors—preparation that can make or break a deal.

I learned this lesson firsthand when I landed my first startup client.

The founders of FoodSwift Pvt Ltd were tech-savvy developers with a brilliant platform that connects home chefs with hungry customers. 

They were excited, passionate, and ready to change the world with their innovative food delivery app. 

They have bootstrapped for months (funding the business with their own savings and revenue without external investors), built a promising MVP (Minimum Viable Product—a basic working version with just enough features to attract early users), and now they are ready for the next big step—seed funding.

However, as I began reviewing their documents, I discovered a maze of problems: 

• verbal equity promises to early developers, 
• IP rights are still assigned to individual founders rather than the company, and 
• a cap table (capitalisation table showing who owns what percentage of the company) that looks more like abstract art than a coherent ownership record. 

The founders are shocked when I explain that these issues could derail their funding.

“But we thought legal stuff only matters in the later stages,” they said. “We were planning to clean everything up after we get the money.”

These types of issues are very common in the early start-up, and the reason is simple. Startup founders are entrepreneurs and not lawyers. 

A lot of lawyers entering the startup ecosystem find themselves unprepared for the unique legal challenges of early-stage companies. While law school taught you contracts and corporate law, it likely did not cover the practical aspects of preparing a fledgling startup for its first formal investment round.

That is where this guide comes in.

Seed funding represents a critical inflection point in a startup’s journey. Unlike friends-and-family money or bootstrapping, seed funding involves professional investors, typically angel investors or early-stage venture capitalists, who invest anywhere from $50,000 to several million dollars to help startups validate their ideas or build minimum viable products. 

Take Google, for instance, which received its first seed investment of $100,000 in 1998 from Andy Bechtolsheim, co-founder of Sun Microsystems. 

This initial funding allowed Larry Page and Sergey Brin to move out of their dorm rooms and establish Google as a company, demonstrating how the right seed investment at the right time can help launch what eventually becomes a tech giant. 

These investors expect a level of legal preparation that many founders simply do not understand. And like I said, founders are entrepreneurs and lawyers, so they are not to be blamed.

As a lawyer advising startups, your role is not just to draft documents or spot problems. You are a crucial bridge between enthusiastic entrepreneurs with big dreams and cautious investors with checkbooks. Your guidance can make the difference between a successful fundraiser and a missed opportunity.

Throughout this article, I will follow the journey of our fictional startup, FoodSwift, as it navigates the pre-seed preparation process. 

Their challenges—from messy cap tables to intellectual property gaps—reflect the real-world issues you will encounter with your own clients. 

So read carefully, because by the end of this article, you will have practical tools to help startups organise their legal affairs before investors come knocking. I will also share links to sample documents that will come in handy when you assist your clients.

Understanding seed funding

When Rahul and Priya, the co-founders of FoodSwift, first approached me about “getting ready for seed,” I was not entirely sure what made seed funding different from other startup financing. 

I had to quickly educate myself to provide proper guidance. 

Let me share what I learned and how I helped them navigate this critical phase.

Seed funding, as I came to understand, is essentially the first formal round of capital that a startup raises from outside investors. 

Unlike the informal money from friends and family (sometimes humorously called the “friends, family, and fools” round), seed funding represents a professional investment with expectations of returns and proper documentation.

I explained to Rahul and Priya that seed funding is like planting a seed that will hopefully grow into a mighty business tree. 

Investors at this stage are betting on potential rather than proven performance. They typically invest after a startup has moved beyond the idea stage but before it has achieved significant market traction or revenue—that sweet spot where there is enough evidence that the concept might work, but still plenty of risk.

In FoodSwift’s case, they had built a functioning app connecting home chefs with hungry customers and had about 200 users in a beta test. This was perfect timing for seed funding—enough to show promise, but they needed capital to scale.

In India, seed rounds typically range from $50,000 to $1 million, depending on the startup’s sector and traction. For FoodSwift, we were targeting around $500,000—enough to hire two more developers, a marketing person, and fund six months of operations while they expanded to three more cities.

Key players in the seed ecosystem

To better advise Rahul and Priya, I needed to understand who they would be dealing with:

• Angel investors: I quickly learned these were high-net-worth individuals investing their personal money in early-stage startups. Many are former entrepreneurs who bring industry expertise along with capital. I connected FoodSwift with two angel investors from the restaurant industry who immediately understood their value proposition.
• Early-stage VCs: These venture capital firms specialise in seed and pre-Series A rounds. Unlike angels, VCs manage other people’s money through investment funds with specific mandates and return targets. They typically invest larger amounts and often lead funding rounds, setting terms that other investors follow. I helped FoodSwift pitch to three local VC firms specialising in food-tech.
• Accelerators and Incubators: In India, programs like IAN, Axilor, or T-Hub offer mentorship and small investments (₹25-50 lakhs) for 5-10% equity, culminating in Demo Days to attract seed investors. International programs like Y Combinator (7% equity) are also accessible to Indian startups but require relocation. FoodSwift had already graduated from a local incubator, which is how they had refined their business model.
• Founders: My clients Rahul and Priya were simultaneously managing product development, early customer acquisition, and fundraising, often with limited resources and runway (the amount of time a startup can survive before running out of cash, calculated by dividing current cash by monthly burn rate).
• Legal counsel: That was me! My role was to ensure FoodSwift was legally prepared to receive investment while protecting Rahul and Priya’s interests.

My role as their lawyer in seed funding

As I advised FoodSwift, I found my work fell into two broad categories:

1. Preventative work: Ensuring they had a clean legal foundation before approaching investors. This included proper incorporation (they had incorporated but had some filing gaps), clear equity distribution between Rahul and Priya (documented in a founders’ agreement I drafted), intellectual property protection (especially for their algorithm), and compliant employment practices.
2. Transaction support: Helping navigate the fundraising process, including reviewing term sheets, preparing financing documents, and facilitating due diligence – a comprehensive process covering legal (contracts, IP), financial (audits, projections), and technical (code review) assessments typically lasting 2-8 weeks. A well-organised data room expedites this process and builds investor trust.

Rahul and Priya initially underestimated the importance of legal preparation, viewing it as an administrative burden rather than a strategic advantage. Part of my job was educating them on how proper legal work creates investor confidence and prevents costly problems down the road.

The lesson hit home when they initially approached an angel investor who was interested but backed out after discovering their cap table showed a mysterious 15% equity allocation to an unnamed “advisor”—actually an early developer who had left on bad terms but retained his equity with no vesting schedule. This ambiguity created a red flag that cost them a valuable investment opportunity. After that experience, they took my advice much more seriously.

Why I emphasised early legal preparation

FoodSwift, like many startups seeking seed funding, faced a common chicken-and-egg problem: they needed money to grow, but they also needed to invest in proper legal work to attract that money. Here is why I convinced them to allocate resources to legal preparation:

• Investor confidence: I explained that professional investors have seen hundreds of startups and can quickly distinguish between those with professional legal foundations and those that cut corners. When we cleaned up their documentation, their next investor meetings went much more smoothly.
• Negotiation leverage: With their legal house in order, FoodSwift entered investment discussions from a position of strength, securing better terms than they might have otherwise.
• Smooth due diligence: When investors decided to proceed, they conducted due diligence, reviewing everything from corporate records to intellectual property. I helped create a well-organised data room (a secure digital repository of company documents) that accelerated this process and prevented last-minute surprises.
• Future-proofing: I emphasised that proper legal work at the seed stage sets the foundation for future funding rounds. Errors compound over time and become increasingly expensive to fix—a lesson they had already learned the hard way.

As a relatively new lawyer to the startup space, I was not expected to know every nuance of startup law immediately. My value came from spotting potential issues early, asking the right questions, and knowing when to involve more experienced counsel. By understanding the seed funding landscape and the stakeholders involved, I was better positioned to guide Rahul and Priya through this critical phase of their journey.

So let us look at the steps that are required to prepare FoodSwift for its seed funding.

Step 1: Conducting a legal health check

The moment I realised just how unprepared FoodSwift was for investor scrutiny, I knew we needed to start with a comprehensive legal health check. 

“What exactly is a legal health check?” Rahul asked when I proposed it. It was a fair question—most founders have never heard of this concept.

A legal health check, I explained, is essentially a systematic review of a startup’s legal foundation to identify and address issues before they become dealbreakers for investors. It’s far better to discover problems yourself than to have investors uncover them during due diligence (that uncomfortable process where investors examine every aspect of your business before writing a check).

For FoodSwift, our health check focused on three critical areas: corporate structure, cap table cleanliness, and authorised capital. Let me walk you through how I approached each area and what you can learn from our experience.

Corporate structure: The foundation

The first question I asked Rahul and Priya was, “Show me your incorporation documents.”

What followed was an awkward silence, then some frantic searching through email folders. Eventually, they produced incorporation documents, but with concerning gaps. 

For FoodSwift, incorporation as a private limited company was complete, but they had missed filing Form MGT-7 (Annual Return) and Form AOC-4 (Financial Statements) with the RoC, risking penalties under sections 92 and 137. I also discovered that Priya’s algorithm, developed pre-incorporation, was not assigned to the company, creating an IP ownership gap.

“These might seem like minor administrative issues,” I told them, “but to an investor, these gaps suggest carelessness—or worse, a lack of understanding of basic compliance requirements.“

I created a simple checklist for them (and for you to use with your clients):

• Incorporation certificate: Is it properly issued and stored?
• Memorandum and Articles of Association: Are they finalised and customised to the startup’s needs?
• RoC filings: Are all mandatory filings, such as Form MGT-7, AOC-4, and DIR-12 filings up-to-date?
• Board resolutions: Have all major company decisions (e.g., share issuance, director appointments) been properly documented?
• Entity structure: Is there a single entity that holds all assets and IP, or are there multiple entities that could complicate investment?

FoodSwift had another common problem—Priya had been developing their algorithm before incorporation, and technically, she still owned the IP personally rather than the company. We needed to fix this through a proper assignment agreement.

When conducting your own legal health checks, look beyond just checking boxes. Consider whether the corporate structure makes sense for future growth. For instance, FoodSwift was incorporated in Mumbai but was primarily operating in Bangalore. This might create unnecessary complications as they scaled, so we discussed potential solutions early.

Cap table cleanliness: Who owns what

The second area of our health check focused on the cap table (that critical document showing who owns what percentage of the company).

When I asked to see FoodSwift’s cap table, Priya hesitantly opened a messy Excel file. “We have been meaning to clean this up,” she admitted.

The spreadsheet showed Rahul and Priya each owning 42.5%, with the remaining 15% allocated to someone listed only as “Dev S.” When I asked about this mystery person, they explained he was an early developer who had worked with them for two months before leaving abruptly. They had verbally promised him equity but never formalised it with proper documentation.

“This is exactly the kind of issue that scares investors,” I explained. “Undocumented equity creates uncertainty about ownership and control.“

Here is what I checked in their cap table, and what you should verify for your clients:

• Founder shares: Are they properly issued and documented? Is there a clear record of share certificates?
• Early contributors: Have all equity grants been properly documented with subscription agreements?
• Vesting schedules: Do founders and early employees have appropriate vesting schedules to ensure long-term commitment?
• Verbal promises: Are there any handshake deals or verbal promises of equity that haven’t been formalised?
• Option pool: Has an employee stock option pool been created (or at least planned for)?

In FoodSwift’s case, we discovered not only the issue with “Dev S.” but also a verbal promise of 2% equity to a UI designer who had done significant early work. These undocumented commitments represented potential claims on the company that could complicate or derail investment.

“Think of your cap table as your company’s ownership story,” I told them. “It should be clean, transparent, and leave no room for questions or surprises.“

Authorised capital: Room to grow

The third critical area I examined was authorised capital—essentially the maximum amount of shares a company is permitted to issue according to its incorporation documents.

This often-overlooked detail can become a serious roadblock during fundraising. When checking FoodSwift’s incorporation documents, I found they had authorised capital of just ₹1 lakh, divided into 10,000 shares of ₹10 each. 

“This could be a problem,” I explained. “When you raise your seed round, you will need to issue new shares to investors. If your authorised capital is too low, you will need to increase it first, which takes time and creates an unnecessary delay.“

For startups approaching seed funding, I recommend ensuring their authorised capital is at least 2-3 times their current issued capital. This provides enough room for the current fundraising round and possibly a bridge round before needing to increase the authorised capital again.

In FoodSwift’s case, I initiated the process to increase their authorised capital to ₹10 lakhs well before approaching investors, avoiding a potential last-minute scramble.

Turning insights into action

After completing our legal health check, I presented Rahul and Priya with a prioritised list of issues that needed fixing:

1. Critical (Fix Immediately): Update all overdue RoC filings, properly document the equity situation with “Dev S.,” and execute an IP assignment from Priya to the company.
2. Important (Fix Before Investor Meetings): Increase authorised capital, create proper founder agreements with vesting schedules, and formalise the arrangement with the UI designer.
3. Good Practice (Fix When Possible): Organise board meeting minutes, create a data room structure, and develop a standard form for consultant agreements.

“This feels overwhelming,” Rahul admitted. “We thought we were ready to fundraise next month.“

“Think of it this way,” I responded. “Every issue we identify and fix now is one less reason for an investor to say no or reduce your valuation. It’s worth the short delay.“

As a junior lawyer, conducting your first legal health check might feel intimidating. Remember that your value is not necessarily in knowing every answer immediately, but in asking the right questions and flagging issues that require attention. 

When I encountered areas where I felt out of my depth, I did not hesitate to consult more experienced colleagues.

The health check became our roadmap for the next phase of work: reviewing and cleaning up early agreements. 

By approaching the process systematically, I transformed what could have been a chaotic scramble into a methodical preparation for investment and significantly increased FoodSwift’s chances of securing that critical seed funding.

Step 2: Reviewing and cleaning early agreements

With our legal health check complete, I turned my attention to the next challenge, that is, untangling the web of early agreements that could potentially scare away investors. 

This is often one of the messiest areas for startups, and FoodSwift was no exception.

“We never thought these early deals would matter so much,” Priya confessed as she forwarded me a collection of emails, text screenshots, and hastily drafted Word documents they had used for early arrangements.

The pre-seed phase of a startup is often characterised by informality

• quick handshake deals, 
• emails confirming arrangements, and 
• promises made in the excitement of building something new. 

While this agility helps startups move quickly, it creates a legal minefield when raising professional capital.

Identifying the agreement landscape

My first step was creating an inventory of all early agreements, both formal and informal. Here is the checklist I used (and that you can adapt for your clients):

• Friends and family money: Have any friends or relatives invested? On what terms? Were these investments structured as loans, convertible notes, or direct equity?
• Advisor arrangements: Has the startup promised equity or payment to advisors? Are there clear deliverables and timelines?
• Service provider agreements: Are there contractors or freelancers who have been promised equity instead of cash?
• Co-Founder arrangements: Is there a clear agreement between founders regarding equity splits, responsibilities, and vesting?
• Early employee promises: Have any employees been promised future equity or options?
• Intellectual property assignments: Has all IP been properly assigned to the company?

For FoodSwift, the inventory revealed several concerning arrangements:

1. A 15% equity promise to the departed developer (“Dev S.”) with no vesting schedule or clear documentation
2. A verbal 2% equity promise to a UI designer who was still actively contributing
3. A ₹5 lakh loan from Rahul’s uncle with fuzzy terms about repayment and potential conversion to equity
4. Three advisors who had been promised “some equity” for their guidance
5. Multiple freelance developers who had built code without clear IP assignment agreements

“Each of these represents a potential red flag for investors,” I explained to the founders. “We need to clean them up systematically.“

The cleanup strategy: formalise, document, or resolve

For each problematic agreement, we followed a three-pronged approach:

1. Formalise verbal agreements

The most dangerous arrangements were the verbal promises, especially to people still working with the company. For the UI designer’s 2% equity promise, we created a proper consultant agreement that included:

• Clear equity vesting schedule (2% vesting over 24 months with a 6-month cliff)
• Specific deliverables and expectations
• Confidentiality and IP assignment provisions
• Termination conditions

Here is a template clause you can use in similar situations:

“In consideration for Services provided, Company agrees to grant Consultant equity representing [X%] of the Company’s fully-diluted capital, subject to a vesting schedule of [X years] with a [X-month] cliff. Vesting will commence on [Start Date]. All equity is subject to the terms of the Company’s equity incentive plan and applicable equity grant documentation, which Consultant agrees to execute as a condition of this grant.”

2. Document or update existing arrangements

For arrangements that had some documentation but were incomplete or unclear, we created proper amendments or replacement agreements.

For the three advisors who had been promised “some equity,” we implemented formal advisor agreements with specific equity grants (0.5% each) tied to clear expectations and a two-year vesting schedule. This approach transformed vague promises into structured relationships that investors could understand and evaluate.

3. Resolve problematic agreements

The trickiest situation was the departed developer holding 15% equity. After attempting to contact him with limited success, we documented all communication attempts and created a contingency plan to address investor concerns. We eventually reached a settlement where he received 2% fully vested equity and signed a release waiving further claims—a significant win for the company’s cap table clarity.

For Rahul’s uncle’s loan, I drafted a simple convertible note agreement with clear terms: 

• ₹5 lakh would convert to equity at the seed round with a 20% discount, or 
• be repaid within 24 months if no funding occurs. 

This transformed a potential red flag into a standard early-stage financing arrangement that investors would recognise.

Practical tips for young lawyers

Through this process, I learned several lessons that might help you when cleaning up early agreements:

1. Start with the cap table impacts. Prioritise fixing any agreements that affect the company’s ownership structure, as these will be the first things investors scrutinise.
2. Do not overcomplicate simple arrangements. For very early-stage startups, extremely complex legal documents can be counterproductive. Focus on capturing the essential terms clearly rather than creating overly sophisticated agreements.
3. Create templates for common scenarios. After cleaning up FoodSwift’s agreements, I created template versions of advisor agreements, contractor agreements with equity components, and simple convertible notes that they could use moving forward.
4. Educate founders on documentation habits. I spent time showing Rahul and Priya how to properly document arrangements from the beginning, saving time and headaches later.
5. Use tools appropriate for the startup’s stage. For very early startups, sophisticated cap table management software might be overkill. For FoodSwift, we started with a well-structured spreadsheet and only later introduced them to specialised cap table management tools.

By the end of our early agreement cleanup process, FoodSwift had transformed a messy collection of promises and informal arrangements into a structured, investor-ready set of relationships. The clarity this created not only made them more attractive to investors but also gave the founders peace of mind about exactly who owned what in their company.

“It feels like we finally have control of our company again,” Rahul told me after we resolved the issue with the departed developer. “I wish we’d done this from the beginning.“

Step 3: Protecting Intellectual Property

When I asked Rahul and Priya about FoodSwift’s intellectual property protection strategy, they exchanged nervous glances.

“We have a logo and some code,” Rahul offered. “But we have not really done anything formal with them yet.“

This response did not surprise me. 

Many founders, especially those with technical backgrounds, view IP as a secondary concern—something to address after securing funding. What they do not realise is that intellectual property is often a startup’s most valuable asset and a key factor in investor decision-making.

For FoodSwift, their proprietary algorithm matching home chefs with nearby hungry customers was their crown jewel. 

Yet this algorithm—the very heart of their business—was technically still owned by Priya, who had developed it before the company’s incorporation. 

This is exactly the kind of IP ownership gap that can derail investment conversations.

So what steps I took, which you can do as well, are discussed below:

Conducting an IP audit

My first step was conducting a comprehensive IP audit to identify everything of value that needed protection. Here is the audit framework I developed (and that you can use with your startup clients):

1. Identification checklist

• Technology: Software code, algorithms, databases, technical documentation
• Brand elements: Company name, logo, slogans, domain names
• Creative works: Website content, app design, marketing materials
• Confidential information: Business plans, customer lists, financial projections
• Processes/Methods: Unique business methods or operational processes

2. Ownership verification

• Who created each element (founders, employees, contractors, third parties)?
• Was the element created before or after company incorporation?
• Do written agreements exist transferring ownership to the company?
• Are there any co-ownership situations or license arrangements?

3. Protection status

• Has formal registration been pursued where applicable (trademarks, patents)?
• Are there confidentiality agreements protecting unregistered IP?
• Does the company have defensive measures against infringement?

For FoodSwift, our audit revealed several critical issues:

1. Their core matching algorithm had been developed by Priya before incorporation with no formal assignment to the company
2. Their logo was designed by a freelancer without a written agreement
3. Five contract developers had contributed code without IP assignment clauses
4. Their distinctive brand name “FoodSwift” had not been registered under Trademark Act
5. They had shared technical documentation with potential partners without NDAs

“Each of these represents a potential deal-killer for investors,” I explained. “We need to address them systematically before any serious fundraising conversations.“

Fixing IP ownership issues

The most urgent task was ensuring all intellectual property actually belonged to the company. Here’s how we approached each situation:

1. Founder IP assignment

For Priya’s algorithm, we created a comprehensive IP assignment agreement transferring all rights, title, and interest to the company. The agreement included:

• Specific identification of the algorithm and related code
• Broad language covering “all intellectual property related to the company’s business”
• Waiver of moral rights and other potential claims
• Lawful consideration under the Indian Contract Act, 1872, through equity allocation and fair monetary value based on asset valuation

Here is a simplified version of the assignment language you can adapt for your clients:

“Assignor hereby irrevocably assigns, transfers, and conveys to the Company all right, title, and interest worldwide in and to the Intellectual Property, including all copyrights, trademarks, trade secrets, patents, patent applications, and all other proprietary rights related to the Intellectual Property, including all extensions, renewals, and reversions of such rights that may exist now or in the future.”

2. Contractor IP cleanup

For the freelance logo designers and contract developers, we created retroactive work-for-hire and assignment agreements. When contractors were unresponsive, we documented our attempts to secure assignments and, in one case, had to redevelop certain code components to ensure clean ownership.

3. Employee IP protection

For FoodSwift’s three full-time employees, we implemented proper employment agreements with strong IP assignment clauses covering both existing and future developments. These clauses ensured that anything developed during employment automatically belonged to the company.

Implementing basic IP protection

Beyond ownership, we implemented basic protection strategies for FoodSwift’s key intellectual assets:

1. Trademark protection

We initiated a trademark application for the “FoodSwift” name and logo in the relevant classes (9 for software applications and 43 for food services). While trademark registration takes 18-24 months, and is subject to objections. We conducted a trademark search to identify conflicts before filing, and informed investors of the application status and potential risks to demonstrate proactive brand protection.

2. Trade Secret Protection

For their proprietary algorithm, which was more suitable for trade secret protection than patenting, we implemented:

• A comprehensive confidentiality policy
• Access controls limiting who could view the core code
• Employee and contractor confidentiality agreements
• Proper marking of confidential documents

3. Open Source Audit

One often-overlooked IP risk is the improper use of open-source software. We conducted an open-source audit to identify licenses (e.g., GPL, MIT, Apache) and their terms. Copyleft licenses like GPL may require derivative works to be open-sourced if distributed, while permissive licenses like MIT pose fewer risks. We documented usage patterns and ensured compliance to avoid IP conflicts.

Creating an IP management system

For ongoing protection, I helped FoodSwift implement a simple IP management system appropriate for their early stage:

IP management checklist for startups

• Centralised repository for all IP-related documents and registrations
• Standard templates for NDAs, contractor agreements, and IP assignments
• Process for identifying and protecting new IP as it’s created
• Regular review schedule (quarterly) to identify new protection needs
• Calendar of renewal dates for domains and trademark registrations

“Think of this as insurance for your company’s most valuable assets,” I told them. “It might seem like extra work now, but it dramatically reduces risk and increases investor confidence.“

With their intellectual property house in order, we were ready to tackle the next critical area: formalising founder and early employee relationships through proper agreements—the subject of our next section. But before that, let me share some tips to young lawyers.

Practical tips for young lawyers

Through this process, I developed several practical insights that might help you when advising your own startup clients:

1. Focus on ownership first, registration second. Clear ownership documentation is more important than rushing to register patents or trademarks with limited resources.
2. Create a “clean room” when necessary. When we couldn’t secure an assignment from one developer, we documented a clean-room redevelopment process to create replacement code without IP contamination.
3. Use appropriate protection for each asset. Not everything needs formal registration. For many startups, trade secret protection for algorithms makes more sense than pursuing patents.
4. Beware of open source. Many technical founders don’t realise that certain open-source licenses can “infect” proprietary code. A simple audit can identify these risks early.
5. Set up future-proof systems. Create templates and processes that will scale as the company grows, rather than one-off solutions.

Step 4: Founder and early employee agreements

When I asked to see the formal agreement between Rahul and Priya outlining their relationship as co-founders, they looked confused. “We’ve been friends for years,” Rahul explained. “We didn’t think we needed anything on paper.”

This handshake approach might work in friendship, but it raises serious red flags for investors. Without clear agreements, questions about decision-making authority, commitment levels, and equity vesting remain dangerously unanswered.

Creating the founder foundation

For FoodSwift, we developed two critical documents aligned with company law:

1. Founders’ agreement

This agreement clearly defined:

• Equity allocation (42.5% each after resolving previous issues)
• Vesting schedule (4 years with a 1-year cliff, standard in the industry)
• Roles and responsibilities (Priya as CTO, Rahul as CEO)
• Decision-making protocols, reserved matters, and voting rights
• Intellectual property assignments with proper consideration
• Exit mechanisms, right of first refusal, and dispute resolution through arbitration under the Arbitration and Conciliation Act, 1996

2. Employment agreements

Though founders often overlook this, we created proper employment agreements for both Rahul and Priya that included:

• Clear compensation terms
• Confidentiality provisions
• Non-compete clauses (limited to 12 months and relevant business areas)
• IP assignment language

Here is a sample vesting clause you can adapt for your founder clients:

“Founder’s shares shall vest over 48 months, with 25% vesting after 12 months from the Effective Date (“cliff period”), and the remaining shares vesting in equal monthly installments over the following 36 months. If the Founder ceases to provide services to the Company before full vesting, unvested shares shall be subject to repurchase by the Company at the original purchase price.”

Securing the early team

For FoodSwift’s three employees, I implemented:

1. Employment agreements with key protections

• Clear descriptions of roles and expectations
• Comprehensive IP assignment provisions
• Confidentiality clauses
• At-will employment terms (with appropriate notice periods)

2. Stock option plan framework

• Reserved 10% equity pool for future employee options
• Created a basic ESOP framework for implementation post-funding
• Developed offer letter templates that referenced future equity grants

This foundation of clear agreements not only satisfied investor requirements but also helped FoodSwift avoid potential conflicts as it grew. With these critical documents in place, we were ready for the final pre-funding step: creating a professional data room to showcase their legal preparedness to investors.

Step 5: Setting up the data room

When I mentioned the term “data room” to Rahul and Priya, they assumed I was talking about a physical location. “Do we need to rent an office space for this?” Priya asked tentatively.

I quickly explained that a data room is simply a secure digital repository where startups organise their due diligence documents for potential investors. It’s essentially the company’s virtual filing cabinet—and often the first detailed look investors get at a startup’s internal organisation.

“Think of it as staging a house for sale,” I told them. “You would not invite potential buyers to see your home with clothes on the floor and dishes in the sink. The same principle applies here.“

Creating the digital framework

For FoodSwift, we used Google Drive as a cost-effective data room option due to its affordability and permission controls. However, we also discussed dedicated platforms like DocSend or Digify that offer advanced security features (e.g., watermarking, access tracking) to meet institutional investor expectations as they progress:

Data room folder structure

1. Corporate (Certificate of Incorporation, MOA/AOA, Board Resolutions)
2. Cap table & equity (Shareholding, Option Grants, Prior Financing)
3. Contracts (Customer, Vendor, Employment, Consulting Agreements)
4. Intellectual Property (IP Assignments, Trademark Applications, Tech Overview)
5. Financial (Financial Statements, Tax Filings, Financial Projections)
6. HR & employment (Employment Agreements, Consultant Contracts, Org Chart)
7. Misc/additional information (Market Research, Press Coverage, Product Roadmap)

Organising for maximum impact

The organisation of the data room matters just as much as its contents. Here are the key practices I implemented for FoodSwift:

1. Standardised naming convention: All documents followed a clear naming pattern:

• Category_Document-Type_Date_Version
• Example: “Corporate_Certificate-of-Incorporation_2023-01-15_v1”

2. Summary documents: Each main folder contained a brief overview document explaining the contents and highlighting key points for investors.

3. Redaction strategy: We carefully redacted sensitive information (customer names, exact compensation figures) while maintaining the substantive content investors needed.

4. Permission structure: We set up tiered access:

• View-only links for preliminary investors
• Specific folder access based on due diligence stage
• Time-limited access expiring after a set period

Practical data room checklist

Here is the checklist I provided to FoodSwift (and that you can share with your clients):

Essential data room documents

• Current cap table with all shareholders
• Certificate of Incorporation and amendments
• Memorandum and Articles of Association
• Board and shareholder resolutions
• Founder agreements and vesting details
• Employee/consultant agreements for key team members
• IP assignments and evidence of ownership
• Application screenshots and product documentation
• Financial statements (however basic)
• Any existing investment documents
• Brief competitor analysis
• Team bios and organisation chart

Anticipating due diligence questions

A well-organised data room should anticipate investor questions. For each section, we prepared brief memos addressing likely concerns:

• For the IP folder: “Chain of ownership for core technology”
• For the Cap Table: “Explanation of equity allocation and vesting”
• For Contracts: “Summary of key contract terms and obligations”

The lawyer’s role

As a junior lawyer, I found the data room creation process to be a perfect opportunity to demonstrate value. Here’s how you can approach this task:

1. Take ownership of the organisation. Create the structure and naming conventions without requiring founder input for every decision.
2. Identify gaps proactively. As you organise, note missing documents and raise them with the founders.
3. Create templates for missing items. When you identify gaps, provide template solutions when possible.
4. Prepare a data room guide. Create a simple user guide for your founders explaining how to maintain the data room going forward.

The data room we created for FoodSwift transformed their scattered documents into a professional, investor-ready package. When their first serious investor requested due diligence materials, Rahul and Priya could confidently share access within minutes rather than scrambling to assemble documents—a level of preparedness that directly contributed to successfully closing their seed round.

With all five preparation steps complete, FoodSwift was positioned not just to seek funding but to approach investors with confidence and professionalism rarely seen at the seed stage, setting them apart from the competition and significantly increasing their chances of success.

Conclusion

So there you have it, FoodSwift’s journey from legal chaos to investment readiness! I have walked these steps with dozens of startups since then, and trust me, watching founders transform from panic to confidence never gets old.

Remember how shocked Rahul and Priya were when I first pointed out their legal gaps? Three months and five systematic steps later, they walked into investor meetings with a quiet confidence that spoke volumes. 

That seed round? 

They closed it at a valuation 30% higher than initially expected.

The legal foundation you help build today is not just paperwork—it’s the launchpad for your client’s dreams. And is that not why we became lawyers in the first place?

In the next article, I will walk you through the art of term sheet preparation—that critical document where all your preparation meets the investor’s checkbook. 

I will decode the jargon, identify the negotiation landmines, and ensure your founders get the best possible deal. 

Trust me, you would not want to miss it!

As promised, here are sample documents that you can customise and use for your clients:

• Legal Audit Checklist for Seed-Stage Startups
• Sample Founder Agreement with Standard Vesting Terms
• IP Assignment Agreement for Contractors/Freelancers
• Standard Employee Confidentiality and IP Agreement
• Simple Convertible Note Template for Friends and Family Investment
• NDA Template for Potential Investors and Partners
• Startup Board Resolution Templates for Common Decisions